"THE ACTION UKRAINE REPORT - AUR"
An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

"Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"

"THE ACTION UKRAINE REPORT - AUR" - Number 632
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., TUESDAY, JANUARY 3, 2006

--------INDEX OF ARTICLES--------
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on 'Return to Index' at end of each article

1. OPINION EUROPE: PUTIN'S MAFIA POLITICS
REVIEW & OUTLOOK: The Wall Street Journal Europe
New York, New York, Tuesday, January 3, 2006
2. THE KREMLIN TIGHTENS THE ENERGY SCREW
The EU, the US and Japan must tell Mr Putin that if he wants to keep
his place among the world's leaders he must start behaving like one.
LEAD EDITORIAL: Financial Times, London, UK, Tuesday, Jan 3 2006

3. THE WEST MUST RESIST RUSSIA'S BULLYING
EDITORIAL: Telegraph.co.uk, London, United Kingdom, Tue, Jan 3, 2006

4. MANAGED LAWLESSNESS
Russia is daily sinking deeper into authoritarianism and lawlessness.
COMMENTARY: By David Satter, The Wall Street Journal
New York, New York, Tuesday, January 3, 2006

5. PUTIN'S RUSSIA TURNS TRADE INTO A POLITICAL WEAPON
Concern about Russia's reputation in the West for reliability
could explain why Gazprom backed off Monday.
NEWS ANALYSIS: By Craig R. Whitney, The New York Times
International Herald Tribune (IHT), Europe, Tuesday, January 3, 2006

6. GEOPOLITICS IN BUSINESS
EDITORIAL: Arab News Online, Jeddah, Saudi Arabia, Tue, 3 Jan 2006

7. MOSCOW HAS MORE THAN THE PRICE OF GAS ON ITS MIND
By Neil Buckley in Moscow, Financial Times
London, United Kingdom, Monday, January 2 2006

8. THE NEW COLD WAR
Russia's use of energy as a political weapon could prove disastrous
The Kremlin's assurances of stable energy supplies are hostage to its
political interests. Europe's energy lifelines must never depend on Russia.
LEADING EDITORIAL: The Times, London, UK, Tue, Jan 3, 2006

9. REAL REASON WHY PUTIN TURNED OFF HIS NEIGHBOR'S GAS
OPINION: By Norman Stone, Telegraph.co.uk
London, United Kingdom, Tuesday, January 3, 2006

10. PRICE OF FAILURE IN THE POST-SOVIET CONSENSUS
While the Russian foreign minister, Sergei Lavrov, claims the dispute
is not political, Moscow officials admit in private it is just that.
Tom Parfitt, The Guardian, London, UK, Tuesday January 3, 2006

11. GAS DISPUTE UNDERMINES RUSSIAN FOREIGN POLICY
OPINION: By Ingo Mannteurel, Deutsche Welle
Bonn, Germany, Monday, January 2, 2006

12. MOSCOW'S MUSCLE-FLEXING COULD BENEFIT KIEV
AFTER GAS CUT SAY RUSSIAN ANALYSTS
Agence France Presse (AFP), Moscow, Russia, Mon, January 2, 2006

13. RUSSIA-UKRAINE GAS STANDOFF
Fred Weir, Moscow, Correspondent, The Christian Science Monitor
Boston, Massachusetts, Tuesday, January 3, 2006

14. PUTIN'S CRITICS DECRY RUSSIAN GAS CUT TO UKRAINE
Gazprom has no right to cut off gas supplies to Ukraine because
of an earlier agreement that fixed prices up to 2009
Ekho Moskvy radio, Moscow, in Russian 0500 gmt 2 Jan 06
BBC Monitoring Service, UK, in English, Mon, Jan 02, 2006

15. CONCERN GROWS IN EU AND US OVER GAS DISRUPTION
By Tobias Buck in Brussels and Caroline Daniel in Washington
Financial Times, London, United Kingdom, Tuesday, January 3 2006

16. DISPUTE LIKELY TO BOOST NUCLEAR POWER ARGUMENTS
Thomas Catan in London, Financial Times, London, UK, Tue, Jan 3, 2006

17. KGB TIGHTENS SCREWS ON UKRAINE
COMMENTARY: Paul Belien, Editor, The Brussels Journal
Brussels, Belgium, Sunday, January 1, 2006

18. OIL RISES FOR A FOURTH DAY OVER CONCERN UKRAINE
GAS DISPUTE WILL SPUR CRUDE DEMAND
Will Kennedy in Singapore, Bloomberg, NY, NY, Tue, Jan 3, 2006

19. BRITAIN IGNORED WARNING OVER RUSSIAN GAS GAMBLE
James Kirkup, Westminister Editor, Scotsman.com
Glasgow, Scotland. Monday, January 2, 2006

20. RUSSIA STEPS BACK FROM BRINK WITH UKRAINE AND
RESTORES GAS SUPPLIES TO EUROPE
Tom Parfitt, Moscow, Luke Harding, Berlin
The Guardian, London, United Kingdom, Tue, Jan 03, 2006

21. GAZPROM TO COVER EUROPEAN EXPORTS 'STOLEN'
BY UKRAINE AFTER SUPPLIES CUT OFF
Bloomberg, New York, New York, Monday, January 2, 2006
========================================================
1. OPINION EUROPE: PUTIN'S MAFIA POLITICS

REVIEW & OUTLOOK: The Wall Street Journal Europe
New York, New York, Tuesday, January 3, 2006

In the old gangster flicks, the Mafia took sole control over a business to
extort exorbitant prices. Refusal to pay carried dire consequences for the
victim. That's basically Russia's approach in its energy fight against
Ukraine.

Moscow unilaterally demanded an almost fivefold price increase for its
natural gas sold to Ukraine. As the "negotiations" proceeded, the Kremlin
bought up future gas supplies from Turkmenistan, trying to limit Kiev's
access to alternative energy supplies. When Ukraine refused to cave to its
demands, Russia simply shut off supplies on January 1, apparently including
existing, and contracted, delivery of Turkmen gas to Ukraine that runs in a
pipeline through Russian territory.

Yesterday, however, Russia reconsidered, mainly because of an angry
European reaction, and said it would pump more gas through the pipeline
so that customers in Europe wouldn't suffer severe hardship during this
cold winter.

This scuffle is only peripherally about money. Influence over a democratic,
free-thinking and erstwhile subservient neighbor is what the Kremlin craves.
Viktor Yushchenko's presidential victory and turn toward the west after his
2004 "Orange Revolution" succeeded was not taken kindly by Mr. Putin.

The U.S. can be no mere bystander. State Department spokesman Sean
McCormack said Moscow's actions "raise serious questions about the use
of energy to exert political pressure," in particular just three months
before parliamentary elections in Ukraine.

Russia's claim that it is only introducing "fair market prices" would be
more plausible if a market in fact existed. Ukraine pays prices well below
the international average, but gas, unlike oil, is not a heavily traded
commodity and global comparisons are not very useful. Gazprom is a huge
monopoly, with monopoly pricing power. Ukraine's more Moscow-friendly
neighbor, Belarus, seems to be exempt from its "market" pricing.

Mr. Yushchenko told us in an interview last month that Kiev wants to
rationalize prices as well. But this change must be negotiated, especially
since any future pricing regime must take into account transit fees for use
of pipelines that send Russian gas to Western Europe through Ukraine.

As of now, Moscow is violating its contractual obligations. In the summer of
2004, the two countries agreed on the current pricing framework until 2009.
But then Russia had different electoral considerations in mind. The deal was
intended to boost the presidential aspirations of Ukraine's Viktor
Yanukovych, Moscow's favored candidate.

The Kremlin exercised heavy-handed involvement in the fraudulent election
that touched off the Orange Revolution that forced the previous regime to
rerun the poll freely and fairly. In that election, Mr. Yushchenko, who
wants a balanced foreign policy, including close ties with NATO and the EU,
emerged triumphant.

Mr. Putin was badly bruised and one might imagine he has been thirsting for
revenge ever since. He and his ex-KGB friends in the Kremlin have never
accepted the political independence of the former Soviet republics. But his
transparent attempts to swing the parliamentary elections, due March 26,
could as easily backfire on him as did his wrongheaded intervention in 2004.

Ukrainians are a proud people and are very sensitive to Russian interference
in their affairs, even if many in the eastern provinces speak Russian at
home and have a kinship with their Russian cousins. "A year ago, we beat the
dictatorship and won a real victory," Mr. Yushchenko told his people in his
New Year's address. "Today we have to go a step further to ensure together
Ukraine's economic independence."

Mr. Putin's strategy affects Gazprom customers in the European Union. He is
warning Ukraine not to siphon off gas destined for Europe so as to be in a
position to blame Kiev if EU states run short. Ukrainian Prime Minister Yuri
Yekhanurov immediately denied any such intent, but Ukraine may need to be
creatively ambiguous to get through these cold months.

If Europe's supplies are in danger, it's Mr. Putin and not Ukraine that's to
blame. Mr. Yekhanurov pointed out that Ukraine was entitled to 15% of the
gas that goes through its pipelines in lieu of transit fees from Gazprom.
For now, it's not clear whether the reduced supplies flowing into Hungary
and Poland are the result of any Ukrainian siphoning or simply reduced
pressure on the line after Russia cut off supplies to Ukraine itself.

Happily, Mr. Putin isn't getting much support in Europe. Germany's new
government put the blame where it belongs -- on Moscow. Conservative
economics minister Michael Glos called on Russia to "act responsibly,"
saying future increases in gas purchases from Russia are only possible if
they are reliable.

With Poland and the other "new Europeans" in the EU firmly supporting
Ukrainian democracy, Germany will be the key in this crisis. Under the
previous Red-Green government, Berlin was particularly indulgent of Mr.
Putin. Its gas industry is also closely linked with Russian energy giant
Gazprom. But new Chancellor Angela Merkel, an avowed Atlanticist with hopes
of mending ties with the U.S., has promised a new approach. This will be the
test for both her and George W. Bush.

The Ukrainian crisis demonstrates what a colossal disservice previous
Chancellor Gerhard Schröder has done to Europe and his own country by
pushing for the ill-conceived new pipeline that will go under the Baltic Sea
and bypass Ukraine and the Baltic countries. At the moment, Moscow can't
shut off the Ukrainian pipelines without also hurting European gas supplies.

Once the new pipeline is finished around 2010, Russia's power to reward
those states that follow its ukase and punish those that question its
policies will only increase. And this doesn't only apply to Russia's former
vassals. It would also allow Moscow to target just Germany and Western
Europe without affecting deliveries to other regions.

The problem goes beyond this particular dispute over gas prices or Moscow's
general desire to control what it considers its "near abroad." All these are
just symptoms of a more serious disease. Mr. Putin, who last year called the
demise of the Soviet empire the "greatest geopolitical catastrophe of the
century" seems to be doing everything possible to undo this "catastrophe."
He is not trying to bring back Communism as such but using oil and gas
"diplomacy" to try to restore the Russian empire.

As David Satter chronicles nearby, Mr. Putin has gradually destroyed Russian
democracy and concentrated in the Kremlin not only political but also
economic power by renationalizing the country's vast energy resources. As
Russia looks more like the Soviet Union at home, its foreign policy follows
old patterns as well. It sells nuclear technology and missiles to Iran while
giving it diplomatic protection. Wherever there is a major political
crisis -- be it Syria or Sudan -- Moscow almost inevitably opposes U.S.
policy and backs the rogues.

Last week, the Kremlin's former economic adviser Andrei Illarionov resigned
in disgust at Mr. Putin's gradual strangulation of Russian democracy. He
likened Russia's price demand on Ukraine to Nazi and Soviet ultimatums to
Eastern European nations on the eve of World War II. A not overly dramatic
description, given that Defense Minister Sergei Ivanov warned Ukraine of
"fatal" consequences after Kiev hinted at raising the rent for the Russian
Black Sea fleet at Sevastopol, the Ukrainian naval base in the Crimea.

All this makes Russia's assumption of the G-8 presidency this month not just
ironic but almost as absurd as when Sudan chaired the U.N. Human Rights
Commission. Moscow's inclusion in the club was never (and still isn't)
justified on economic grounds.

It was predominantly designed to encourage democratic and economic reforms
in a country that still holds a formidable nuclear arsenal. Perhaps the
engineers of that policy, including Mr. Bush, are now beginning to see that
they made a mistake. -30-
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
2. THE KREMLIN TIGHTENS THE ENERGY SCREW
The EU, the US and Japan must tell Mr Putin that if he wants to keep
his place among the world's leaders he must start behaving like one.

LEAD EDITORIAL: Financial Times, London, UK, Tuesday, Jan 3 2006

Russia has crossed a dangerous line in cutting gas supplies to Ukraine.
While Moscow has legitimate grounds for complaint in its dispute with Kiev,
its actions are irresponsible. The interruption of Ukraine's shipments will
damage Russia's efforts to establish itself as a trustworthy energy
supplier. It will also cast a shadow over President Vladimir Putin's
attempts to increase Russia's global influence. Moscow's year as president
of the Group of Eight for 2006 could not have had a more difficult start.

Moscow is within its rights to end the preferential deals under which former
Soviet republics buy gas. Given the high global energy prices, price
increases are commercially justified. They are also desirable in economic
and environmental terms as they could push the region's notoriously
inefficient energy users to cut waste.

But the Kremlin's motives are largely political. Mr Putin is taking revenge
on Ukraine for the triumph of, Viktor Yushchenko, its west-oriented
president, in the Orange revolution. Russia is angry at its loss of
prestige, irritated at Kiev's bids to join the European Union and Nato, and
fearful of the precedent set by a successful democratic revolt.

Gazprom, the Russian gas giant, is raising gas prices across the former
Soviet Union. Georgia, Armenia and Azerbaijan have seen prices rise from
$60 per 1,000 cubic metres to about $110. The Baltic states have been hit by
increases from $80-$95 to about $120. These countries may look enviously
at Belarus which pays $50 and has escaped a price hike altogether - in a
political favour from Russia to the dictatorial president, Aleksander
Lukashenko. But with Gazprom supplying western Europe at $230 per
1,000 cubic metres, all these countries still enjoy a big discount.

Ukraine is in a different league, with Russia seeking an increase from $50
to $230 - that is, from the cheapest export rate to the highest. Singling
out one customer like this flies in the face of commercial logic. This is
Russia brutally flexing its political muscle.

But if Moscow hopes to cow Kiev into submission it may be disappointed.
Crucial parliamentary elections are due soon: the dispute will probably
benefit Mr Yushchenko's supporters and almost certainly damage
Russia-oriented parties. The crisis will also accelerate Ukraine's efforts
to cut its dependence on Russian gas by securing alternative supplies. The
same will be true in the Baltic states, central and western Europe.

Russia says it is not reducing supplies to the EU, only cutting Ukrainian
gas that flows down the same pipeline. It accuses Ukraine of "stealing" gas
intended for other customers. Ukraine claims it is only taking payment in
kind for the gas shipped to the west, in line with existing agreements.

These tortuous arguments show how closely linked are the interests of the
producer and the shipper. The only answer is a rapid settlement, with the
increases proposed by Russia spread over time.

The EU is failing to respond with sufficienct urgency. So reluctant are
officials to break their holidays that the first EU meeting on the crisis is
to be held only tomorrow. With Hungary's gas imports down by 40 per cent
and Slovakia's by 30 per cent, this shows a shameful lack of EU solidarity.

The union needs more integrated energy policies. The best way to deal with
Russia in the energy market is by presenting a united front - or at least a
co-ordinated bargaining position. Such a joint stance would not directly
protect Ukraine. But it would make it more difficult for Russia to apply
pressure to its customers.

As a first step, Gerhard Schröder, the former German chancellor, should
reconsider his decision to work for Gazprom as chairman of the planned
Baltic Sea gas pipeline. He should not lend his name to such a blatant
instrument of Russia's political power.

Mr Putin values Russia's presidency of the Group of Eight for the prestige
it will bring Russia as chair of the global elite's top club. He also wants
to use Moscow's presidency to address world energy policies. The EU, the
US and Japan must tell Mr Putin that if he wants to keep his place among
the world's leaders he must start behaving like one. -30-
---------------------------------------------------------------------------------------------
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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3. THE WEST MUST RESIST RUSSIA'S BULLYING

EDITORIAL: Telegraph.co.uk, London, United Kingdom, Tue, Jan 3, 2006

The dispute between Russia and Ukraine is about more than the price of gas.
By raising the price of 1,000 cubic metres from $50 to $230, Gazprom -
Russia's state-owned supplier and, therefore, a political tool of Vladimir
Putin - has sought an economic revenge on a former Soviet republic that has
dared to declare its diplomatic independence from Russia and to look towards
western Europe.

To cut off the gas supply to Ukraine in the depths of winter has been an
invitation to the Ukrainians to divert supplies of gas meant for several
European countries. Germany takes 30 per cent of its gas from Russia. Its
Chancellor, Angela Merkel, has already warned Moscow to act "responsibly".

France, which obtains a quarter of its gas from that supplier, has so far
remained discreet - an attitude reminiscent of Mr Chirac's uncritical
attitude to Saddam Hussein, with whom his country spent so much time
breaking oil sanctions.

President Putin's promise to pump extra gas to Europe in order to make up
any shortfall shows cunning rather than penitence: the West must now decide
whether to raise the tone against Russia or let its bullying and aggression
go largely unremarked.

The methods of gangsterism and blackmail now being used by Gazprom are
reminiscent of the Soviet era. They are entirely at odds with the country
President Putin would like to claim Russia now is and in which alleged guise
it has, since Sunday, chaired the G8 group of industrial democracies.

The West has to tell Russia that, plainly and simply, its conduct is
unacceptable if it wishes to remain part of the club of civilised nations.

Although Britain takes no gas from Russia, it too must speak up for
stability in the former Soviet Union and not be seen to condone the
punishment by Russia of its former satellites. Mr Blair used his influence
with President Putin to secure deals for BP to extract energy supplies from
Russia on a long-term basis.

He was right to note that Britain's self-sufficiency is over and that such
supplies must be secured from Russia as well as elsewhere. However, for
Russia to use its natural resources as a means of behaving ruthlessly and
unscrupulously with its neighbours is a medieval tactic that cannot be
condoned in the modern world.

Mr Blair should not hesitate to take the lead in applying pressure on Russia
to behave itself. Russia has more to lose by being driven out of polite
international society than the rest of the world does and the ambitious
President Putin knows it.

The West, for its part, must realise that if blackmail is paid once it will
be sought again; and a second Cold War, this time economic, is the last
thing the West needs now. -30-
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http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2006/01/03/dl0301.xml&sSheet=/news/2006/01/03/ixnewstop.html
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
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4. MANAGED LAWLESSNESS
Russia is daily sinking deeper into authoritarianism and lawlessness.

COMMENTARY: By David Satter, The Wall Street Journal
New York, New York, Tuesday, January 3, 2006

With Sunday's accession of Vladimir Putin to the presidency of the G-8,
post-Soviet Russia has achieved a new level of recognition and prestige as a
democratic state. The recognition is undeserved. Instead of being democratic
or even becoming democratic, Russia is daily sinking deeper into
authoritarianism and lawlessness.

Last week Andrei Illarionov, who since 2000 handled Russia's negotiations
with the G-8, resigned on the grounds that Russia is no longer politically
or economically free. "It is one thing to work in a country that is partly
free," he said. "It is another thing when the political system has changed
and the country has stopped being free and democratic."

Russian officials insist that Russia is democratic but that democracy looks
different in Russia than it does in the West. Sergei Markov, a political
analyst and Kremlin adviser, said that "Russia has as much democracy as it
can have at this stage of its development." The Russian system is described
as "managed democracy," a term reminiscent of the old Soviet insistence that
the U.S.S.R. was a "genuine democracy."

In fact, there is nothing democratic about Russia beyond the façade of
elections that are regularly fixed. The country lacks three of the
fundamental requirements of democracy -- political pluralism, the rule of
law and respect for human life.

There is no political pluralism in Russia because the Russian regime has
worked systematically to eliminate all independent sources of power. The
tendency was well illustrated by the recent adoption of a new law limiting
NGOs. The law places a government body, the Federal Registration Service,
in charge of NGOs with the power to shut them down on the basis of vague
guidelines. Foreign NGOs can be closed if they threaten Russia's "national
interests," domestic NGOs for two minor violations.

This law was important because it marked the end of a process. In 1993,
Boris Yeltsin abolished the former parliament, the Supreme Soviet, by force,
and introduced a new constitution that provided for a new parliament, the
State Duma, which had little real power.

Under Mr. Putin, new parliamentary elections were held during the early,
successful stages of the Second Chechen War. In the war atmosphere,
supporters of Mr. Putin were swept into office, destroying the previous
opposition majority. Mr. Putin then launched campaigns against independent
media outlets, eventually placing all TV stations with a national reach in
the hands of the government. With the help of a more compliant Duma, he
then removed governors from the upper house of parliament. Finally, after the
Beslan tragedy, he eliminated the direct election of governors altogether.

The effects of the destruction of political pluralism are aggravated by the
lack of the rule of law. In the absence of checks and balances, the
executive is free to rule alone and neither the courts nor the prosecutor
can uphold the law. Two of the most serious examples of the absence of the
rule of law are the hunt for "spies" and the murder of journalists.

The hunt for spies is the work of the federal police, or FSB. One of the
most celebrated cases is that of Igor Sutyagin, a former researcher at the
Institute of the U.S.A. and Canada who was sentenced to 15 years in a labor
camp for giving supposedly secret information to Alternative Futures, an
English consulting firm. Yet Mr. Sutyagin, a specialist on the U.S. Navy,
provided reports based on open sources.

More recently, Valentin Danilov, a researcher in Krasnoyarsk, was sentenced
to 13 years for giving state secrets to China. He also provided information
from open sources, a fact that was barred from mention at his trial. The
effect of these cases and others has been to stifle exchanges between
Russian and foreign scholars on anything even remotely resembling a secret
topic.

The murder of journalists is possible because of the impunity of business
and local political elites. At least 12 journalists have been murdered in
Russia since Mr. Putin took office, making Russia the fifth most dangerous
country for journalists in the world. Not one of these cases has been
solved.

The best-known is that of Paul Klebnikov, the editor of the Russian edition
of Forbes, who was murdered in July 2004. Under intense U.S. pressure, the
Russians charged a group of Chechens with the crime and a closed trial began
last month in Moscow. Unfortunately, the case is highly improbable.

According to the prosecutor, the killing was planned by Khozh-Akhmed
Nukhaev, the leader of a Chechen criminal group, who was interviewed by
Klebnikov for a book but did not like the way he was depicted. He is still
at large. Two of the arrested Chechens, Musa Vakhayev and Kazbek
Dukuzov, are accused of carrying out the killing at Mr. Nukhaev's behest.

However, Alexander Gordeev, editor of the Russian edition of Newsweek
said that Klebnikov said twice, with his last breath, that his attacker was a
Russian. Throughout Russia, relatives of journalist victims insist that
killings are not investigated because the people who ordered them have
connections to the police.

Finally, Russia is unable to qualify as a democracy because the government
bureaucracy, unconstrained by law, shows a disregard for human life. Just
how serious the problem is was demonstrated during the Moscow theater and
Beslan hostage crises, the details of which have only recently been
revealed. In the case of the theater siege, it is now known that the theater
was flooded with toxic gas and stormed even though the FSB was aware that
virtually all of the hostage-takers' most powerful bombs were incapable of
detonating.

Perhaps the most shocking example of the Russian authorities' disregard for
human life, however, was their behavior during the Beslan school tragedy. A
report by a parliamentary commission of the republic of Northern Osetia
released Nov. 29 states that the military operation in Beslan began an hour
after Alexander Dzasokhov, the president of North Osetia, agreed with a
representative of Chechen resistance leader Aslan Maskhadov that Maskhadov
would come to Beslan to try to resolve the crisis.

The report also said that the first explosion was produced by either a
flame-thrower or grenade-launcher fired from outside the building -- i.e.,
by the Russian forces. The inescapable conclusion is that the Russians
opened fire on a building filled with hostages, including hundreds of
children, in order to head off negotiations.

Witnesses at the trial in North Osetia of the only surviving member of the
terrorist band testified that Russian forces also fired repeatedly on the
school with flamethrowers and grenade launchers 30 to 50 minutes after the
start of the attack. This could have caused the fire on the roof of the
athletic hall that led to the majority of deaths.

In response to these conclusions, "Voice of Beslan," a group of survivors
of the terrorist act, appealed to Western organizations, including the U.S.
Congress, for help in investigating the tragedy. "With horror," they wrote,
"we should recognize" that terrorist acts are the authorities' most
effective tool for resolving "their political and commercial problems. We
accuse the current Russian regime of aiding and abetting Russian and world
terrorism."

As Russia takes the helm of the G-8, but there will inevitably be questions
about its right to such a role. The situation is aggravated by Moscow's most
recent actions. On Sunday, Russia cut off gas to Ukraine, in response to
Kiev's refusal to accept a fourfold price increase imposed in violation of
an existing contract.

Under the circumstances, Russia needs to be held to the standards of the
G-8, which is an organization of free-market democracies. Russia's internal
situation -- which is so menacing to Russia itself -- is the proper business
of the other members of the G-8. And examples of Russian lawlessness need
to put an end to Russia's chairmanship and, if they continue, to Russia's G-8
membership itself.

The Putin regime cannot ignore the views of G-8 colleagues. This is why
the West needs to use all its influence to counteract Russia's self-destructive
behavior. -30-
--------------------------------------------------------------------------------------------
Mr. Satter is affiliated with the Hoover Institution, the Hudson Institute
and Johns Hopkins. He is presently writing a book on the Russian attitude
toward the Soviet past.
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[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
5. PUTIN'S RUSSIA TURNS TRADE INTO A POLITICAL WEAPON
Concern about Russia's reputation in the West for reliability
could explain why Gazprom backed off Monday.

NEWS ANALYSIS: By Craig R. Whitney, The New York Times
International Herald Tribune (IHT), Europe, Tuesday, January 3, 2006

PARIS - By choking off gas supplies to force the Western-oriented
government of Ukraine to accept a quadruple price rise before he apparently
backed down Monday, President Vladimir Putin of Russia raised important
strategic questions for European governments that depend on Moscow for
a fifth or more of their own fuel.

Ever since the early 1980s, when pipelines from Russia were first built -
over American objections - with billions of dollars in aid from the Western
countries that needed the gas, Europeans have argued that trade was not a
good weapon in political conflict.

But Putin, like President Ronald Reagan back in the 1980s, seems to
disagree, and used economic pressure in a show of force against Ukraine
until at least partly relenting Monday night.

Two decades ago Reagan used and later lifted sanctions to try to get Moscow
to make concessions on nuclear weapons and weaken its stranglehold over
Eastern Europe.

Among the questions now are whether Putin, trying to keep Ukraine from
moving further away from the Russian political sphere of influence, thought
better of cutting off gas supplies because of unexpectedly severe
"collateral damage" to allies and European trading partners, or because he
thought he had made his point strongly enough.

More crucially, does he - and do those trading partners - believe that he
could use similar methods on them, too, one day?

Putin's Soviet predecessors during the Cold War repeatedly assured
Europeans that they would be reliable trading partners no matter how hot
American tempers ran, and the Europeans believed them.

In 1981, Soviet and West European leaders alike protested when Reagan
imposed sanctions against the first big gas pipeline project from Russia to
the West because of the declaration of martial law in Communist Poland. That
crackdown was led by General Wojciech Jaruzelski, who now says he feared a
Soviet invasion unless he stifled moves toward independence from Moscow.

Reagan's sanctions were "an attempt to interfere with our sovereign rights,"
former Chancellor Helmut Schmidt of Germany said in an interview in 1984.
Reagan lifted the sanctions in November 1982 after the death of Leonid
Brezhnev, the Soviet leader, and the Europeans agreed to keep trade from
strengthening Moscow militarily.

The Soviet Union is now history, in part because of Poles' resistance to the
crackdown and because of Mikhail Gorbachev, the last Soviet leader, whom
Prime Minister Margaret Thatcher of Britain welcomed as "a man we can do
business with."

Whether Putin is such a man is a question that seems bound to arise at least
in some European officials' minds now that he has apparently tried to use
gas as a political weapon to keep Ukraine from following Poland out of
Moscow's orbit.

Since Sunday, Putin has been chairman of the Group of 8 leading industrial
democracies. Much of the gas that three of them - France, Germany and
Italy - get from Russia comes through the same pipeline that feeds Ukraine.

The German economics minister, Michael Glos, urged caution on Russian
leaders Monday in an interview with WDR German radio. "Russia is in the
chair of the G-8, and here too responsible conduct is called for," he said,
recalling that he had told Putin on a recent visit to Moscow that "Russian
gas has a very good reputation in Germany, above all a reputation for high
dependability and delivery reliability."

Nevertheless, Glos, a member of the conservative Bavarian CSU party, also
made a pitch in the interview for diversifying Germany's energy supplies by,
for instance, going back to atomic power plants, a step he said Chancellor
Angela Merkel's coalition partners in the Social Democratic Party had not
been ready to accept when they hammered out government policy late last
year.

Since then, her Social Democratic predecessor as chancellor, Gerhard
Schröder, has become supervisory board chairman of a new company formed
by the Russian state-run monopoly Gazprom and two German energy firms to
build a new gas line from Russia to Germany that would run under the Baltic
Sea and bypass Ukraine completely - a more reliable source of Russian gas,
in the view of the project's promoters.

Concern about Russia's reputation in the West for reliability could explain
why Gazprom backed off Monday.

But Gazprom may also have made at least some European customers wonder
whether the same thing could happen to them some day. European leaders
seem likely to ask Putin the same thing in the coming weeks. -30-
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6. GEOPOLITICS IN BUSINESS

EDITORIAL: Arab News Online
The Middle East's Leading English Language Daily
Jeddah, Saudi Arabia, Tuesday, 3 January 2006

In cutting off gas supplies to the Ukraine, Russia is making a geopolitical
point that may cost it dearly in the long run. The brutality of its response
to Ukraine because the government of Western-leaning President Viktor
Yushchenko refused to countenance an immediate four-fold increase in the
amount it pays for its Russian gas has hit Western Europe, which takes a
quarter of its gas from Russia through a pipeline that runs through the
Ukraine.

The rights and wrongs of the row between Moscow and Kiev are immaterial.
In a world governed by law, not least contract law, neither companies nor
governments can expect to dishonor crucial commercial agreements and not
expect lawsuits. Gazprom, the government-run utility that has turned down
the gas flow to the Ukraine and thus to its other customers beyond it in
Western Europe, has simply stepped outside the bounds of accepted business
behavior. Sure, it can sell its gas to whom it likes and for whatever price
it can get, but an ugly dispute with one customer cannot be allowed to
affect its contractual obligations to others.

There were signs last night that someone in the Kremlin had convinced the
Putin administration that it may have gone too far. Unfortunately for
Moscow, the damage has already have been done. There may or may not be
lawsuits from Western European companies demanding compensation from
Gazprom. There will certainly however be a subtle change in attitude by
Russia's energy customers.

Such is the cost and complexity of oil and gas distribution, especially by
pipeline. Energy companies need long lead times to set up alternatives. That
means that nothing is going to happen very soon to what has been a growing
dependence on Russian gas in particular. However, energy professionals are
used to taking the long view. It therefore seems likely that contingency
plans for fresh energy supplies are already being dusted down.

In the recent past, the energy industry has responded radically to far less
provocation. From its first days in office, the Blair government in Britain
decided it could raise extra revenue by imposing windfall taxes on North Sea
oil companies. The result has been a slowdown in North Sea investment in
enhanced recovery and new exploration and thus a faster than expected end
to the UK's own oil and gas reserves.

Western governments and oil companies will now be thinking that if this is
how Russia can treat its customers in a row with a third party, how much
more damaging will be its behavior if there is ever a direct difference
between Moscow and Berlin or Paris or some other Western European
government.

The search for alternative gas supplies is sure to impact the Middle East
where fresh investment will become available for the location, production
and liquefaction of fresh gas resources. In the short term, Gazprom will not
lose its markets, but, in the longer term, it will find customers reluctant
to commit to supply agreements that the Kremlin has just demonstrated
can be set aside so peremptorily. -30-
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7. MOSCOW HAS MORE THAN THE PRICE OF GAS ON ITS MIND

By Neil Buckley in Moscow, Financial Times
London, United Kingdom, Monday, January 2 2006

An air of unreality hung over events as Russian national television
suspended normal programming on New Year's day to show live pictures of
technicians turning down the flow of natural gas to Ukraine at a compressor
station near the Russian border.

Few believed Russia would carry out its threat, on the day it assumed the
rotating presidency of the Group of Eight industrialised nations with a
pledge to make "energy security" a key theme. The Russia-Ukraine gas trading
relationship is, after all, the second largest in the world after Canada-US.

The fact Russia has taken such drastic action suggests how important it
believes the issue is - and that the dispute is about much more than the
price of gas.

At its heart, certainly, is a commercial conflict. Russia is raising prices
to all former Soviet neighbours towards market levels, after subsidising
them for 14 years.

Alexander Medvedev, vice-president for export at Gazprom, Russia's
state-controlled gas giant, adds that there are good reasons why some
republics have are still paying much less than the $230 per 1,000 cubic
metres (tcm) being demanded from Ukraine.

The Baltic states, now paying $120, for example, have already agreed to
start buying gas at European market prices in two years.

The Caucasus states, paying $110, buy gas from Central Asia, so transit
charges are much less than for Ukraine, whose gas comes from northern
Siberia. Belarus, paying little over $46, has agreed to give Russia joint
control over the export pipeline running across its territory to western
Europe - similar to the one across Ukraine.

Mr Medvedev says the $50 Ukraine pays now was negotiated in a completely
different environment: "Over the past several years, prices in Russia and
Europe more than doubled and trebled, but the price for Ukraine remained the
same."

Yet analysts see a heavy political element to the price dispute. Ukraine's
"Orange Revolution" in late 2004 tore it out of Moscow's sphere of influence
as President Viktor Yushchenko turned its gaze westwards. It was also a
personal setback for Russia's President Vladimir Putin, who had backed the
losing presidential candidate, Viktor Yanukovich.

Ukraine, moreover, occupies a pivotal position at the heart of Europe.
Russia allied with its 48m-strong Slavic neighbour has a much greater chance
of re-establishing itself as a significant geo-political power - one of Mr
Putin's biggest aims. The move to charge Ukraine "retail" prices for gas may
be punishment for moving out of Moscow's influence, and a demonstration
that life outside Russia's embrace can be harsh.

"Nothing says 'it's over' quite like charging retail," says Stratfor, a
private US intelligence firm. Russia may also be trying to influence Ukraine's
parliamentary elections three months from now, to return a more
Moscow-friendly legislature.

Mr Yushchenko's supporters suggest it is no coincidence that Russia is
trying to send a message about the perils of crossing Moscow before
elections in which he again faces a tough race against the pro-Russian Mr
Yanukovich.

There may be another reason why Russia is demanding such a high price of
Ukraine: so it can force it into a compromise involving agreement to share
control over its transit pipeline with Russia - as Belarus does. For a
country seeking to increase gas exports to Europe, joint control over the
main pipeline would be an important prize.

There are other precedents for handing over control of assets in return for
lower gas prices. Following an increase in prices for Georgia, Gazprom is
offering to fix the cost for 10 years in return for agreement to form a
joint venture to operate and develop Georgia's natural gas transportation
system.

Mr Medvedev says Gazprom would consider an asset swap with Ukraine in
return for agreeing on a transition period to higher prices - and makes little
secret of its favoured option. "We are ready to consider other assets that
may be of interest to us," he says. "But we are particularly interested in
the transit pipelines in Ukraine." -30-
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8. THE NEW COLD WAR
Russia's use of energy as a political weapon could prove disastrous
The Kremlin's assurances of stable energy supplies are hostage to its
political interests. Europe's energy lifelines must never depend on Russia.

LEADING EDITORIAL: The Times, London, UK, Tue, Jan 3, 2006

The Russian cut-off of gas supplies to Ukraine may prove, in the long run,
as catastrophic to the Kremlin as the oil boycott in 1973 eventually proved
to the Arabs. Whatever the bland public communiqué by the European Union
at its emergency meeting tomorrow, urging Moscow and Kiev to settle their
quarrel, the lesson for Europe is clear: the Kremlin's assurances of stable
energy supplies are hostage to its political interests. Europe's energy
lifelines must never depend on Russia.

The political conclusion is almost as bleak. President Putin, having backed
the wrong horse in Ukraine's presidential election last year, is determined
to avenge himself on the Orange Revolutionaries. The decision to quadruple
the price paid for Russian gas is clearly political and intended to hurt. It
is taken in response to the Yushchenko Government's decision, deeply
resented in Moscow, to position itself closer to Nato and the European
Union. It is, if not economic blackmail, at least an unacceptable use, in
the name of market economics, of a dominant market position.

That such a clumsy action should mark Russia's assumption of the G8
presidency is a poor riposte to Western critics who maintain that President
Putin is, in any case, unqualified to host - for the first time - the annual
summit because of his poor democratic record. His clampdown on
non-governmental organisations is only the latest in a series of
restrictions that have caused the resignation of a top Kremlin economic
adviser, with the reproach that Russia was no longer politically or
economically free.

The irony of the action against Kiev is that Mr Putin wants to make energy
security the leitmotif of the summer summit. How could he better demonstrate
how a contract can be abused or a country undermined by the manipulation of
its energy supplies?

Ukraine, however, has scarcely helped to defuse the quarrel. The appointment
last year as Prime Minister of Yulia Tymoshenko, a woman viscerally
anti-Russian in her policies, was as provocative as it subsequently proved
divisive and sabotaged the talks with Moscow on a new gas contract. Her
sacking, amid charges of corruption, signalled the end of the Orange
Revolution's honeymoon and with it hopes that President Yushchenko would
be able to overcome inherited problems of corruption and opportunism.

Ukraine has, therefore, had little incentive to make concessions. Indeed,
the gas row was seen as the best way of demonstrating to Western Europe
Russia's attempts to put pressure on its neighbour, while uniting a
fractious country behind a Government determined to stand up to Russian
bullying. If, however, Ukraine is proposing to siphon off gas intended for
Western Europe in compensation for transit charges or to supplement a
sudden shortfall in the depth of winter - or, indeed, if it has already done
so, as Russia alleges - this will quickly lose it friends in the West.

President Putin offered a last-minute compromise, proposing a freeze in
price for the next quarter. Ukraine turned this down. Parliamentary
elections are due in March: little would so galvanise Mr Yushchenko's
supporters than a stand-off with Moscow.

But little could be more dangerous to the rest of Europe. Ukraine may get
through this winter. But the opening of a new Cold War shows that pipelines
are the new weapons of choice for an embattled and angry Kremlin. -30-
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9. REAL REASON WHY PUTIN TURNED OFF HIS NEIGHBOR'S GAS

OPINION: By Norman Stone, Telegraph.co.uk
London, United Kingdom, Tue, January 3, 2006

President Putin has caused a New Year rumpus with a demand that his
Ukrainian neighbour should start paying world prices for Russian gas and
oil. It means that the new country - 50 million people on the north coast of
the Black Sea in a state that stretches from Poland almost to the Caucasus -
will all of a sudden have to pay four times more than before for the most
elementary commodity for subsistence, especially in that dreadful winter.

Although the Russians have said they will let through enough for private
households, their denizens may just not have a factory or a job to go to.
The economy may be shut down.

A strange affair, and there are shouts of "Russian imperialism" in some
quarters. Is Russia trying to remake her old empire, this time by cracking
the energy whip at her former colonies?

If that is what Mr Putin is trying to do, he can be sure of support at home.
Russia has seen not just the independence of former dependencies but also
their drift towards western Europe - in some cases, even the United States.

In the Baltic states, now members of the European Union, there are Russian
minorities (and in the case of Latvia an only-just minority). There, the
Russians are meant to learn Baltic languages that, with the best will in the
world, Russians cannot take seriously as cultural vehicles (and the Euro
Parliament is strangely silent as to the linguistic oppression that results,
whereas there is jumping up and down about Kurdish in Turkey).

The Baltic states are in the end pimples on the Russian back and, in their
historic role as entry ports to Europe, better off, for themselves and for
Russia, as nominally independent entities.

But there is a far more important case in which a recovering Russia needs to
assert herself before a head-shaking world. It is what we used to call "the
Ukraine", a word that means in Russian "on the edges". Ukraine - the "the"
was dropped when she became independent - is on the edges of Russia and the
Catholic, Polish west, and was fought about in the course of old wars, when
the Ukrainians themselves were on both sides. Now we have another version of
those old wars. If Ukraine wishes to make deals with the West, then Russia
has a trick up its sleeve: heating.

In one of his nationalist rants, Solzhenitsyn puts a good question: what was
the worst mistake made by the tsars in foreign policy? His answer is
curious. In 1809, Russia, a reluctant ally of Napoleon, took south-eastern
Poland from Austria. In 1814, she gave it back. Solzhenitsyn considered this
a dreadful blunder because that territory became the heartland of Ukrainian
nationalism. It was there that the language and the culture developed, and
the sense of independent nationalism that won in 1991.

Old Solzhenitsyn dislikes this. Why should there be a Ukraine independent of
Russia at all? Two-thirds of the Ukrainians lived in Russia and were very
well integrated there: most of them Orthodox and, as far as educated ones
were concerned, Russian-speaking, with an enormous amount of inter-marriage
and intra-migration.

Ukrainian writers, headed by Gogol and Bulgakov, contributed a huge amount
to Russian literature and today's Russians are simply bemused when they find
that these writers are now read in Ukrainian schools in Ukrainian, a
language that they themselves would have regarded as peasant stuff.

Of course, the true trouble, as regards the two-thirds of Ukraine that was
once called "Little Russia", has nothing to do with Solzhenitsyn's romantic
memories of 1809. Ukraine is independent now because of the terrible
experience of life in the old Soviet Union.

She lost maybe eight million of her peasants in the great famine of the
early Thirties, a famine induced because Stalin wanted to sell grain at
dirt-cheap prices to buy German machinery. Then there was the political
persecution of Ukrainians who wanted religious and cultural liberty. In the
end, for Russia as well as Ukraine, some sort of nationalism was the only
escape from communism.

Russian and Ukrainian nationalists both set up independent states, not even
quarrelling very much as to the borders. When Yugoslavia fell apart, Croats
and Serbs notoriously came to blows. To the surprise of many of us, there
was not that sort of trouble between Russia and Ukraine - partly because at
ground level there just is not that sort of animosity (outside the
ex-Austrian west Ukraine) and partly because there was something of an
economic partnership. Russia gave Ukraine cheap energy and in return the
former Soviet factories and mines continued some form of their previous
relationship.

Such privatisation as occurred kept most things under some form of Russian
control. Kiev in the 1990s was, of course, rather a poor and strangely run
place, but by 2004, with Russian subsidies, it was beginning to work
tolerably well. As oil prices rose in the past three years, Russia itself
became tolerably prosperous and Moscow became something of a showcase,
its character vastly different from 10 years earlier.

Enter that weird piece of pantomime, "the Orange Revolution". There were
Ukrainians - the western ones especially - who absolutely did not like the
deals being done with Moscow. Why not launch a campaign for the country
to join Europe, as Poland and Lithuania had done? Unfortunately, electoral
results were very far from being in their favour and a coup was launched.

The "stage army of the good", on which our Peter Simple used to write so
memorably, has now become a sort of
feministo-Euro-non-governmental-organisational-ecologisto-free-media
panjandrum, complete with Euro MPs living in tents in the main square of
Kiev listening to amplified rock music while pretending to ward off the
charge of the Cossacks.

The Ukrainian establishment was perfectly happy to go along with whichever
force was the stronger: the old bosses with Moscow links or the new ones
with European ones. In the event, the government was upset and the present
one came in, with a desire for the benefits that European membership is
supposed to bring.

But there is the Russian-sympathising east of the country and there is the
divided middle, with Kiev, and they have not been happy. The results of the
Orange Revolution have been political division and economic insecurity - and
deep anxiety for Russia. With Ukraine (in some form), she is another version
of the United States; without Ukraine, she is a Canada. But there is one
weapon in her armoury: she is a Canada with oil and gas.

If Ukraine attempts to join the Germano-Polish west, which exploited her
people cruelly up to the 17th century, then the Moskale (Ukrainian for
Russians) will show who is boss. And maybe - maybe - it is for the good of
us all. Europe needs a functioning Russia much more than a semi-functioning
Ukraine. -30-
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10. PRICE OF FAILURE IN THE POST-SOVIET CONSENSUS
While the Russian foreign minister, Sergei Lavrov, claims the dispute
is not political, Moscow officials admit in private it is just that.

Tom Parfitt, The Guardian, London, UK, Tuesday January 3, 2006

The history shared by Russia and Ukraine runs deeper than any of the
historical links that bind Britain. People in both countries feel a deep
sense of brotherhood, and each country has a substantial minority of
the other's nationality. Russia's feudal precursor - Kievan Rus - was
established in the ninth century in the city that is now the Ukrainian
capital.

Elites in Moscow and Kiev have preserved these links, even down to
cooperating in corruption scandals. But it was not just the orange
revolution last winter that sent relations between the Slavic neighbours
into a tailspin. Promises by the Ukrainian president, Viktor Yushchenko,
to integrate as rapidly as possible with the EU and Nato certainly irked
Moscow. But diplomatic ties have been wobbly ever since the breakup
of the Soviet Union in 1991.

Nikita Khrushchev's decision to hand Crimea from Russia to Ukraine in
1954 - then a minor shift within the Communist behemoth - came home to
roost in the wake of the Soviet collapse. Millions of Russians were left
stranded in a foreign country, as was the Black Sea fleet, a matter that has
been a bone of contention ever since.

Even before the orange uprising, former Ukrainian president Leonid Kuchma
had declared his country's "European choice", although he crawled back to
the Kremlin a little after a domestic political crisis in 2001.

The current dispute between Moscow and Kiev is so bitter because it has
ruptured a post- Soviet consensus that in order to get low energy bills, the
newly independent states must hand Russia control of a chunk of their
economy. In the Kremlin's view, countries that choose to opt out of this
unspoken agreement deserve all they get: in this case, a shortage of gas to
feed Ukraine's metals industry.

Belarus played the game last week when it ceded its Yamal pipeline carrying
gas to European clients to the Russian monopoly Gazprom. As a result,
Belarus will get its delivery of Siberian gas at $47 (£27) per 1,000 cubic
metres compared with the $230 Gazprom is demanding from Ukraine. Even
Georgia, with its anti-Kremlin president, Mikhail Saakashvili, has been
careful to avoid slamming the door on Russian participation. Its price this
year is $110.

Kiev refused Gazprom's offer to buy into Naftogaz, its state-owned pipeline.
Moreover, Russian businessmen do not want to prop up Ukrainian
competitors after they were denied a cut of the re-privatisations following
Mr Yushchenko's rise to power.

While the Russian foreign minister, Sergei Lavrov, claims the dispute is not
political, Moscow officials admit in private it is just that. -30-
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11. GAS DISPUTE UNDERMINES RUSSIAN FOREIGN POLICY

OPINION: By Ingo Mannteurel, Deutsche Welle
Bonn, Germany, Monday, January 2, 2006

Regardless of what happens in the Russian-Ukrainian gas dispute, the
Kremlin's global foreign policy strategy has already been badly damaged.

There's no question that Gazprom, Russia's state-owned energy company,
has the right to demand Ukraine pay a higher market price for natural gas
more in keeping with international rates. But the same goes for Ukraine. It
wants to be paid better for the Russian gas pipeline to Europe that's so
important to Gazprom. At heart, both sides are closely dependent on each
other, which should actually facilitate agreement.

In addition, Gazprom has itself recently demonstrated in its dealings with
other former Soviet republics that there's a great margin for the price of
gas. With Georgia, Armenia and Lithuania -- not to mention the special case
of Belarus -- it agreed on far lower gas prices than the $220-$230 (186-194
euros) per cubic meter that it's demanding from Ukraine. If purely
commercial interests played a role in setting the price, a result
acceptable for both sides would surely have been reached already.

Apparently another factor is at issue in the dispute with Ukraine: Russia
is using its energy supplies to politically influence its neighbor. It's
difficult to avoid the impression that the Russians' obstinate behavior in
negotiations is meant to punish Ukraine, which fell out of favor with the
Kremlin due to the pro-Western Orange Revolution late last year.

The Russian threats and ultimatums are all the more cutting as Ukrainian
parliamentary elections are only three months away. The "orange" camp,
centered on the one time figureheads Viktor Yushchenko and Yulia
Tymoshenko, is already deeply split. Numerous polls say pro-Russian
candidate Viktor Yanukovich's party has the best chances. Freezing, or at
least disillusioned, Ukrainians could relegate the Orange Revolution to a
short episode in their history.
BAD DAMAGE TO RUSSIAN FOREIGN POLICY
The blatant use of Russian energy supplies for foreign policy aims,
however, cancels out Putin's strategy to employ the energy supplies to
increase Russia's international influence. For, in the gas dispute, Russia
doesn't come across as a responsible energy supplier and a reliable
partner, but as an unpredictable actor who can't be counted on.

Even if European consumers are spared shortfalls, one thing is clear:
Dependency on Russian energy supplies means direct political dependency
on the Kremlin. Those who issued warnings about Russia's imperial reflexes
now see themselves proven right. Europe's governments and energy firms
will start searching more intensively for alternative suppliers and supply
routes as well as ways to save energy and promote alternative energy
sources. And they are right to do so, since relying solely on Russian gas
and fair business conduct appears too risky. But energy isn't a suitable
political weapon -- something the Arab states have also discovered.

It's particularly ironic that Russia assumed the presidency of the Group of
Eight on January 1. Moscow had previously declared that global energy
supplies and Russia's role concerning them were among the most important
issues for its G8 presidency. However, the Kremlin's strategy to use its
energy supplies to become integrated into the world community as a reliable
partner has been badly damaged due to the escalation of the Russian-
Ukrainian gas dispute. -30-
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12. MOSCOW'S MUSCLE-FLEXING COULD BENEFIT KIEV
AFTER GAS CUT SAY RUSSIAN ANALYSTS

Agence France Presse (AFP), Moscow, Russia, Mon, January 2, 2006

MOSCOW - Russia's move to cut off Ukraine's gas supply will reveal
how dependent the former Soviet republic is on cheap natural gas, but
Ukrainian President Viktor Yushchenko could be the ultimate winner,
according to Russian analysts.

"The gas war is an electoral strategy" by Yushchenko, said Sergei
Markov, a political analyst close to the Kremlin.

The cut-off seems at first a double success for the Kremlin, ensuring
future increased budget receipts and a weakening of Yushchenko's
leadership ahead of key parliamentary elections in March and just over
a year since he came to power against a Russia-backed candidate.

But Markov, who advised Yushchenko's rival Viktor Yanukovich, said
the Ukrainian president could in fact be strengthened by the dispute.

"The crisis is very handy for Yushchenko since if the parliamentary
election campaign was taking place in normal conditions, he would lose them
and the future constitutional reform would weaken his power," said Markov,
referring to a reform that strengthens parliamentary authority in Ukraine.

"His electoral campaigners invented a strategy of breaking off talks, of
refusing to compromise so as to force Gazprom to cut off the gas and
provoke anti-Russian hysteria" in Ukraine, he said.

Markov's analysis was echoed by a Russian foreign affairs ministry
statement released Sunday that accused the Ukrainian leadership of seeking
to make political gain from the crisis by casting Russia as an "enemy."

In the closing days of 2005, Russian President Vladimir Putin came up with
two proposals -- one for a large commercial loan to Kiev to fund higher gas
costs and the other for a price hike delay until the second quarter of 2006.

In Russian evening news bulletins on Russian television, Putin was
portrayed as the moderate voice trying to find a compromise, at one stage
even scolding Russian and Ukrainian energy negotiators for stoking up a
"real crisis" between the two countries.

Yushchenko rejected the loan and called for a "fair" price for the gas,
which he set at 80 dollars per 1,000 cubic metres.

Moscow has said it wants Ukraine to pay close to world market prices at a
level of 230 dollars per 1,000 cubic metres, compared to the 50 dollars
Kiev currently pays. Ukraine, a country of 48 million people, depends on
Russia for around a third of its gas supply.

Another Russian political analyst, Viktor Kremenyuk from the US-Canada
Institute in Moscow believes the Ukrainian president wants to build up
tension with Moscow to fulfil his long-term strategic objectives, including
joining the North Atlantic Treaty Organisation (NATO).

"What mars this bid is a Russia-Ukraine agreement on the port of Sebastopol
and the cooperation between Russian and Ukrainian defence enterprises," the
analyst said, referring to the Ukrainian port that houses Russia's Black
Sea fleet.

"If the situation gets worse and becomes dramatic, he could invoke Moscow's
hostility against Ukraine to denounce the Sebastopol agreement," Kremenyuk
told AFP.

Kremenyuk said that even if Ukraine took some of the Russian gas being
pumped through Ukrainian territory on its way to Europe, it would not risk
negative reactions on the part of the West.

"Europe will take pity on poor Ukraine. In Eastern Europe, the Baltic
countries and Poland there has always been animosity towards Russia,"
he said. -30-
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13. RUSSIA-UKRAINE GAS STANDOFF
With 80 percent of Russian gas exports flowing through
Ukraine, wintry Europe could be hard hit.

Fred Weir, Moscow, Correspondent, The Christian Science Monitor
Boston, Massachusetts, Tuesday, January 3, 2006

MOSCOW - Russian natural gas supplies to Europe, used to heat homes
and businesses, fell sharply Monday as a pricing dispute between Russia
and Ukraine turned nasty.

Monday, the Russian energy giant Gazprom cut off Ukraine's share of the
gas flowing through the Friendship Pipeline. The pipeline carries about 80
percent of Russian gas exports through Ukraine to the West.

Russia says Ukraine is now "stealing" its share from Europe. Ukrainian
officials deny it, but Serbia lost half of its gas supplies, forcing
rationing and some industries to switch to oil. Hungary, Croatia, and
Slovakia also reported a 30 percent drop in supplies Monday.

By late Monday, Russia appeared to back down, vowing to restore full
gas supplies to Europe by Tuesday night.

The Russian-Ukraine gas-price quarrel is stirring political passions on both
sides and threatens to escalate into a much wider confrontation, experts
warn. The gas conflict has its roots in Ukraine asserting its independence
from Russia a year ago.

Moscow says Kiev should follow the logic of the "Orange Revolution," in
which Ukrainians broke free from Russian influence, and accept that the days
of Soviet-era energy subsidies must end. Ukraine, while agreeing in
principle to higher gas rates, argues that the nearly five-fold price hike
demanded by Moscow is unfair, abrupt, and politically motivated.

"Everybody understands that this is not about market pricing, it's pure
politics," Oleksander Shushko, an analyst with the independent Institute of
Euro-Atlantic Integration in Kiev. He says that the crisis may do great harm
to Ukraine's energy-intensive economy in the short-run, but will show
Ukrainians the need to wean the country's economy from dependence on
Russia. "Unless we resolve this on our terms," he says, "it's clear that
Russia will be able to play this card against us anytime it wants to."

The crisis erupted on the same day Russia assumed chairmanship of the
Group of Eight (G-8) market-driven democracies, a high-profile position
which Moscow has pledged to use to promote global "energy security."

German and US officials criticized the Russian cutoff as undermining its
credibility as a European supplier. "Such an abrupt step creates insecurity
in the energy sector in the region and raises serious questions about the
use of energy to exert political pressure," said a statement released by the
US State Department.

Gazprom, a state-run monopoly, set the 2006 price of gas for Ukraine at
almost $230 per thousand cubic meters, up from $50 under an old contract
that Kiev claims is still in force. Moscow says that's in line with the
average $240 paid for Russian gas in the European Union. But Ukrainian
President Viktor Yushchenko said Sunday that price "is unacceptable, because
it is economically unfounded." Mr. Yushchenko has suggested $80 would be
an acceptable new price.
LOYAL BELARUS PAYS JUST $47
Russia has long provided its former Soviet neighbors with cheap energy in
return for political loyalty and economic preferences. The Baltic states of
Latvia and Estonia - now EU and NATO members - pay $110 for the same
amount of Russian gas. Russia's loyal ally, Belarus, pays just $47.

In late 2005, Gazprom said it charged its customers in Western Europe an
average of $135 per 1,000 cubic meters, but expected that figure to rise to
about $255 this year. Poland won't say what it pays, but media reports have
said it pays between $200-$250, according to The Associated Press. Bulgaria
now pays $180 per 1,000 cubic meters, but is expected to pay between
$230-$260 in 2006.

About a third of Ukraine's gas is supplied by Russia, while Ukraine produces
about 20 percent of its own needs. The remainder comes from former Soviet
Turkmenistan, via Russian pipelines. Monday, Gazprom reportedly cut off
Ukraine supplies from Turkmenistan, too.
POLITICAL BOOST FOR YUSHCHENKO?
Most experts, on both sides, agree there is a strong political component to
the Kremlin's tough line. "We have vast resources and they give us political
influence," says Vladimir Zharikhin, deputy director of the state-funded
Institute of Commonwealth of Independent States Studies in Moscow. "If
we give a lower price to somebody, we have the right to demand political
concessions.

So, we will give economic aid only to the countries that are loyal to us.
This may not be a great geopolitical policy, but it's better than nothing."

The gas crisis comes just as Ukraine heads into parliamentary elections,
slated for March, in which Yushchenko faces tough opposition from his
former pro-Moscow rival Viktor Yanukovych and his estranged ex-ally
Yulia Tymoshenko. Even many Russian experts believe that standing up
to the Kremlin could boost the image of Yushchenko, who has been flagging
in opinion polls, amid allegations of corruption and signs of economic
drift.

"By this step Russia complicates any possible union of our peoples in the
future," says Leonid Ivashov, vice president of the pro-government Academy
of Geopolitical Problems in Moscow. "Ukraine will continue drifting towards
the West, while Yushchenko will get a chance to blame all his political and
economic failures on Moscow."

Energy shortages are likely to hit hardest in heavily industrialized eastern
Ukraine, which is, ironically, the main bastion of pro-Russian sentiment.
Despite the Orange Revolution a year ago, Yushchenko defeated Mr.
Yanukovych in free elections by just eight points, 52 to 44 percent.

Experts say those divisions between Ukraine's Russified east and the more
nationalistic west remain very acute. Mr. Shushko says that many people in
the east may blame Yushchenko for alienating Moscow and bringing
hardships down on them.

"I think this crisis will have a polarizing impact within Ukraine," he says.
"While it may strengthen support for Yushchenko among his supporters,
those who didn't support him before may feel even more strongly against
him."
WILL GAS IGNITE OTHER FLASHPOINTS?
Most dangerous, the dispute could spread to other potential flashpoints
between Russia and Ukraine, especially the emotionally sensitive status of
Crimea, a mainly Russian populated territory that was given to Soviet
Ukraine as a "gift" by Nikita Khrushchev in 1954. Moscow currently pays
Kiev about $98 million annually for the use of the warm water naval port at
Sevastopol, where Russia's Black Sea fleet is based.

Last month Ukrainian Defense Minister Anatoliy Hrytsenko suggested that
Kiev could start charging Moscow "market prices" of up to $500 million
annually, for use of the facilities.

That brought an angry retort from Russian Defense Minister Sergei Ivanov,
who said any attempt to renegotiate the deal could re-open the border issue.
"The agreement on the Black Sea fleet base is one part of a bilateral
treaty, the second part of which contains recognition of mutual borders,"
Mr. Ivanov said. "Trying to revise the treaty would be fatal."

A tiny border incident over a sandbar in the Kerch Strait between Crimea
and Russia two years ago inflamed passions on both sides and had some
nationalist politicians talking of military mobilization. "There is real
potential for this crisis to spread," says Sergei Markov, a Kremlin adviser.
"In Crimea the population is 95 percent Russian-speaking, but they are
forced to [conduct official business] in Ukrainian. There is really
explosive material here."

Mr. Markov says the stakes are high, and the Kremlin is unlikely to back off
its harsh stance toward Ukraine. "Failure will undermine Russia's image, but
victory will strengthen it," he says. "To be a guarantor of energy security,
it's important to be firm. If Moscow were to agree to continue paying for
Ukraine's anti-Russian behavior, who would ever take us seriously?"
WHO'S FEELING THE PINCH?
Europe gets 80 percent of its Russian natural gas via Ukrainian pipelines.
On Monday, Russia cut off gas supplies to Ukraine, but Ukraine was
supposed to allow Europe's share to keep flowing. Some European
countries are already seeing shortages.

[1] Hungary says natural gas imports from Russia have fallen by more
than 40 percent.
[2] Austria's oil and gas group OMV says Russian supplies have fallen
by about 33 percent.
[3] Slovakia, Croatia, and Romania say that Russian gas coming via
Ukraine dropped by 30 percent on Monday.
[4] Italy, which gets about 30 percent of its gas from Russia, says that
less gas is arriving. It has stocks to last 15 days.
[5] Poland reports a 14 percent reduction in gas supplies since Russia
cut off gas to the Ukraine. It's working to increase flows from Belarus.
[6] Germany, which gets more than one-third of its gas from Russia, says
it has stocks to last 75 days. But larger companies may suffer cutbacks if
Russian gas doesn't start flowing again soon. (Source: Reuters)
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14. PUTIN'S CRITICS DECRY RUSSIAN GAS CUT TO UKRAINE
Gazprom has no right to cut off gas supplies to Ukraine because
of an earlier agreement that fixed prices up to 2009

Ekho Moskvy radio, Moscow, in Russian 0500 gmt 2 Jan 06
BBC Monitoring Service, UK, in English, Mon, Jan 02, 2006

MOSCOW - President Vladimir Putin's opponents said in comments to
Russian Ekho Moskvy radio that Russia is wrong to withhold natural gas
supplies to Ukraine over the price dispute between the two neighbouring
ex-Soviet states.

Andrey Illarionov, who resigned his role of economic adviser to Putin on 27
December over what he said were differences of opinion on economic policy,
said Gazprom had no right to cut off gas supplies to Ukraine on 1 January
because an earlier agreement with importer Naftohaz Ukrayiny made it
impossible for Gazprom to force a price rise to 230 dollars per 1,000 cubic
metres.

"Today's prices, 50 dollars per 1,000 cu. m., were set by a supplementary
agreement to a contract between Gazprom and Naftohaz [Ukrayiny] which
was signed on 8 August 2004. The contract, according to the text of the
supplementary agreement, is to be in effect for five years, up to 2009. The
supplementary agreement states that the price of 50 dollars per 1,000 cu. m.
is fixed.

For those who don't fully understand the meaning of the Russian word fixed,
it says two lines further down that these prices are not changeable," he
told Ekho Moskvy in comments aired at 0500 gmt on 2 January.

Human rights campaigner Lev Ponomarev held Putin responsible for
Gazprom's hard-bargaining tactics, which he viewed as unfriendly to Ukraine.

"What Putin has done, namely, setting the most brutal conditions at the
outset, saying that from 1 January we are switching to new prices only to
make a show of ostensible kindness and offer old prices for three months if
you sign up to new prices in three months - and he only gave one day for
that - by doing all this he was forcing Ukraine to its knees. He was not
resolving the problem as neighbours, let alone friends, would do," said
Ponomarev in remarks aired at 0700 gmt. -30-
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15. CONCERN GROWS IN EU AND US OVER GAS DISTRUPTION

By Tobias Buck in Brussels and Caroline Daniel in Washington
Financial Times, London, United Kingdom, Tuesday, January 3 2006

The European Union's top energy official yesterday told Russia and the
Ukraine to resolve their dispute over gas supplies "very quickly", and
warned that European consumers should not be used as "hostages" in the
conflict over prices.

Andris Piebalgs, the EU energy commissioner, said: "The situation is of
concern. In the short term we have sufficient gas in the EU and I believe
that Russia will put more gas into the system, as they have promised today.
But as long as the conflict goes on we are definitely worried."

Mr Piebalgs said he did not have sufficient information to pass judgment on
the two countries' behaviour, but insisted the stand-off had to be resolved
as fast as possible: "I don't have all the details of the negotiations so I
would not like to judge. But I very much regret that agreement has not been
reached. A dispute between transit operator and supplier should not take
customers hostage."

He stressed that it was up to Russia to take the initiative, "because they
have the key to the gas supplies". Mr Piebalgs had no plans to mediate in
the dispute for the time being, arguing that "to mediate you need some
invitation".

However, the EU would have to play a role in developing a long-term solution
to the problem: "This situation shows that in the long term we must find a
system where such situations cannot repeat themselves. We cannot face the
same situation in 2007. It is clear that we should work for a long term
agreement - and we should be involved."

He was speaking ahead of an emergency meeting of EU energy officials in
Brussels tomorrow. The gas co-ordination group will advise the European
Commission on how to handle the fall-out from Gazprom's decision.

In Washington, Sean McCormack, State Department spokesman, said on
Sunday that the US regretted Gazprom's move: "Such an abrupt step creates
insecurity in the energy sector in the region and raises serious questions
about the use of energy to exert political pressure. As we have told both
Russia and Ukraine, we support a move toward market pricing for energy
but believe that such a change should be introduced over time rather than
suddenly and unilaterally."

Frank Verrastro, senior fellow and director of the energy programme at the
Center for Strategic and International Studies, said yesterday: "The US does
not want to be involved in this and sees it primarily as a European problem,
but they would advise the Russian government to take more steps to raise
prices . . I am surprised at how little the US has reacted to Russia policy
overall.

Administration officials say it is a good relationship, but at some point
the accumulation of concerns should force a change in policy. Mr Bush's
personal relationship with Putin has not translated into policy gains."
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Power Corrupts and Absolute Power Corrupts Absolutely.
========================================================
16. DISPUTE LIKELY TO BOOST NUCLEAR POWER ARGUMENTS

Thomas Catan in London, Financial Times, London, UK, Tue, Jan 3, 2006

Russia's row with Ukraine has triggered fresh concern over the security of
Europe's energy supplies and some see nuclear power as the biggest
beneficiary.

With no oil or gas of their own, many big European economies have long
been almost wholly dependent on imports to meet energy needs. Germany,
France and Italy are all big importers of natural gas, something that has
rarely been a cause for concern in the past.

However, the situation is set to become more acute, with Europe projected to
become far more dependent on imported Russian gas in the next 15 years or
so. Britain, for example, is turning from being an exporter of natural gas
into a major importer as its supplies from the North Sea run out.

According to the EU, two-thirds of its total energy requirements - and
three-quarters of its gas - will be imported by 2020. Much of that will be
provided by Russia's state-controlled gas monopoly, Gazprom. A study
commissioned by the EU last year warned that, with the arrival of the new
eastern European members, EU reliance on Russian gas would increase
further.

"The vulnerability of the EU to a disruption of gas supplies is growing,
partly because of the increased gas imports in general and partly because
of the high dependence on a single source, Russia, of the new member
states," the study found.

"The ability to diversify . . is limited due to the fixed infrastructure and
the organisation structure of the gas industry in Russia."

Russia has become increasingly explicit about its intention to use its
energy reserves as a foreign policy tool. The question now is whether
Europe should work harder to reduce its reliance on imported energy.

One of the few options available to European countries would be to build
more nuclear power stations. After the oil shocks of the 1970s, France
embarked on a massive nuclear programme, and today, more than three-
quarters of its electricity comes from nuclear power.

By contrast, around 20 per cent of Britain's power is generated with nuclear
power and that proportion is set to fall sharply. Unless new nuclear plants
are built, Britain says it will rely on gas to generate 70 per cent of its
electricity by 2020 - with the vast majority coming from Russia.

The UK government is poised to make a decision in the next six months
on whether to allow a new generation of nuclear plants in Britain.

Germany, the largest consumer of Russian gas, has promised to close all
its nuclear power stations by 2020. But many analysts believe the new
government will agree to extend the lives of many reactors when the
political climate is right.

If the country's energy supplies are threatened by Russia's spat with
Ukraine, however, that moment could come sooner rather than later.

"It makes countries a little bit more nervous about using gas where they
have other options, so it must directionally favour the prospects for
nuclear power," said Graham Weale, director of the European energy
service for Global Insight, the consultants.

In recent years, many European nations have promoted renewable energy
sources such as wind or wave-power. But those sources are not large or
reliable enough to reduce energy imports substantially. Countries such as
Germany and Spain still have coal, but any remaining deposits are expensive
to mine and heavily subsidised.

New "clean coal" technologies can help deal with the additional pollution
caused by burning coal instead of gas. But these, too, come at a high cost.

As Russia becomes more assertive about using its vast energy reserves to
promote its foreign policy, it needs to be careful about overplaying its
hand. In the 1970s, oil prices soared as the newly formed oil cartel, the
Organisation of the Petroleum Exporting Countries, asserted its control.

The resulting price rise hurt the world economy and caused a crash in oil
demand. It also spurred the development of a host of alternative energy
sources, such as nuclear power, further reducing demand for oil. For those
reasons, Saudi Arabia has been restrained about the way in which it wields
its power since the 1970s, using it instead to enforce stable prices. Russia
may find it has to do the same.

Russia has the world's largest gas reserves within pipeline distance of one
of the world's largest regional gas markets. But as it takes the reins of
the Group of Eight industrialised nations this month, it will have to be
careful that its fight with Ukraine does not end up permanently denting its
reputation as a reliable energy supplier. -30-
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17. KGB TIGHTENS SCREWS ON UKRAINE

COMMENTARY: Paul Belien, Editor, The Brussels Journal
Brussels, Belgium, Sunday, January 1, 2006

In the 1930s Russia robbed Ukraine of its food supplies. The Kremlin
deliberately created a food shortage. Ukrainian grain was collected and
stored in grain elevators that were guarded by the Soviet army and secret
police units (the NKVD, the predecessor of the KGB) while Ukrainians
were starving in the immediate area. The result of the man-made famine
of 1932-33 was the death of 7 million people.

The famine was instigated by the Russians to break the spirit of the
Ukrainians and force them into collectivisation and submission to Moscow.
"Let us do it again," Vladimir Putin, a former officer of the KGB, the
Soviet Gestapo, and a worthy successor to Josef Stalin, said today.

The criminals who ruled Russia under the Soviet regime, and who bankrupted
not only their own country but the whole of Eastern Europe, are still in
charge in Moscow. Today, Russia's state-run gas company Gazprom has cut
gas supplies to Ukraine. The cut is the result of Russia's unilateral
decision to raise the gas price for Ukraine from 50$ to 230$ per 1,000 cubic
metres of gas.

Ukraine, still recovering from 70 years of Soviet occupation, is unable to
pay this price and proposed a compromise of 110$, but Moscow wants to
punish Ukraine because its politicians are not submissive enough to the
Kremlin.

Gazprom charges the Moscow-friendly dictatorship in Belarus (another country
run by a former KGB agent) only 47$ per 1,000 cubic metres of gas. Armenia
and Georgia are charged 110$, Romania 280$ and the EU on average 240$.
According to the Kremlin, nations that want to be free have to pay the price
of the free nations.

Last week Andrei Illarionov resigned as Mr Putin's economic advisor. Mr
Illarionov, who never collaborated with the former Communist regime, is an
honest man. He accused the Kremlin of using gas as "a weapon." Last week
Ukraine, which depends heavily on Russian gas, tried to find a new gas
supplier and approached Turkmenistan. Unfortunately, Turkmenistan is also
run by former KGB criminals. Gazprom thwarted the Ukrainian plan by buying
Turkmen gas stocks itself, at a price of... 65$ per 1,000 cubic metres.

Ukraine is dependent on Russia for 30% of its gas supplies. Western Europe,
however, is dependent for the gas that it buys in Russia on pipelines
running through Ukraine. Consequently Gazprom cannot simply cut all supplies
to Ukraine. It has reduced the supplies to the pipeline by 15%, which is the
percentage of the total volume that is used by Ukraine. If it wants to do so
Kiev can tap into the Russian supplies to the West in order to secure its
own gas supplies. The Russians have warned the Ukrainians that if they do
so, they will be considered to be thieves. Western Europe is concerned, too.

Some EU countries rely heavily on Russian gas. Germany, for example, gets
about 30% of its gas supplies from Russia, which makes it as dependent on
Russian gas as Ukraine. If Kiev uses the gas for its own needs, to prevent
Ukrainians freezing to death through Putin's actions as they starved to
death through the actions of his predecessor Stalin eight decades ago, it is
Germany that will be left in the cold. On Wednesday EU gas industry experts
will meet in Brussels to discuss the crisis.

It is easy to see what would have happened today if the gas pipeline that
the Russians and Germans are planning to build on the Baltic seabed had
already been completed. This pipeline, which is to be ready by 2010, will
enable the Russians to deliver gas directly to Germany, bypassing all
countries in between.

It will allow Mr Putin to reassert Russian dominance over the whole of
Eastern and Central Europe. It is time that the West sees Putin for what he
really is: the new Stalin. If the Baltic pipeline gets built it will mean
the end of freedom and democracy in Eastern Europe. Again the West, as
it did earlier in Yalta, will have sold out the East to the Russian bear.

Today, January 1, 2006, Russia also takes over the chairmanship of the G8
group of industrial nations for the first time in history.

This provides Mr Putin, the executioner of Ukraine, with an opportunity to
emphasise Russia's role in international affairs. Though the Russian economy
is peanuts compared to those of the US, Canada, Japan, Germany, France,
Britain and Italy, it has been admitted into the club of developed
democracies because Russia has enough oil and gas to keep Western Europe
supplied for years to come.

Some US Senators have argued that Russia should not have been allowed in
as a member. What is happening today shows that they are right. -30-
======================================================
LINK: http://www.brusselsjournal.com/node/617
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18. OIL RISES FOR A FOURTH DAY OVER CONCERN UKRAINE
GAS DISPUTE WILL SPUR CRUDE DEMAND

Will Kennedy in Singapore, Bloomberg, NY, NY, Tue, Jan 3, 2006

SINGAPORE - Oil rose for a fourth day after Russia cut natural gas
deliveries to Ukraine, raising concern European crude demand may increase
as users switch fuels.

Gas supplies to France, Italy and other European customers fell after Russia
halted pipeline shipments to Ukraine on Jan. 1. OAO Gazprom, Russia's
state-owned gas monopoly, has demanded Ukraine pay five times more for the
fuel in 2006 than last year. The Ukraine pipeline goes on to supply Western
Europe, which buys about a quarter of its gas from Russia.

"Conflict between Ukraine and Russia will drive up prices of natural gas and
this should have some correlated effect on crude,'' said Dariusz Kowalczyk,
senior investment strategist at CFC Seymour in Hong Kong. "The only leverage
that Ukraine has is that the pipeline to Europe goes through its
territory.''

Crude oil for February delivery rose as much as 56 cents, or 0.9 percent, to
$61.60 a barrel in after-hours electronic trading on the New York Mercantile
Exchange. Oil traded at $61.36 at 10:44 a.m. Singapore time. Prices rose 40
percent last year, more than the 34 percent gain in 2004.

Natural gas prices for next day delivery in the U.K. rose 18 percent
yesterday on the APX Gas Exchange. Power prices in Germany, Europe's
largest energy user, gained 6 percent, according to Spectron Plc prices on
Bloomberg.

European utilities, which are building gas-fired plants to replace ageing
coal units, may have to increase output at more expensive oil-fed plants to
make up for gas shortages. Natural gas accounts for about a fifth of the
power production in the European Union, according to the International
Energy Agency. -30-
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Will Kennedy in Singapore at wkennedy3@bloomberg.net.
http://www.bloomberg.com/apps/news?pid=10000103&sid=a14xG6UnMNCY
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19. BRITAIN IGNORED WARNING OVER RUSSIAN GAS GAMBLE

James Kirkup, Westminister Editor, Scotsman.com
Glasgow, Scotland, Monday, January 2, 2006

KEY POINTS -----
. Russia's gas dispute with Ukraine could now hit British households
. DTI was warned four years ago that over-reliance on imported gas a risk
. Other European countries likely to be affected more than UK

KEY QUOTE -----
"The presumption has been that Russia would always be a reliable supplier,
but how can that be guaranteed? No-one knows who's going to be in charge
in Russia in ten or 15 years' time." - BRIAN WILSON, FORMER ENERGY
MINISTER AT DTI

Story in full THE Department of Trade and Industry was warned at least four
years ago that relying on imported gas would render the British economy
vulnerable to disruption from Russia, The Scotsman has learned.

The revelation came as the government admitted yesterday that Russia's gas
dispute with Ukraine could hit British households and businesses with even
higher energy prices. On Sunday, when Russia cut supplies to Ukraine, the
DTI said there was "no immediate threat" of price rises.

And in another risk to western European economies, Norway, Britain's
biggest gas supplier, warned it would not be able to increase output to meet
any shortfall from Russia.

Britain is now a net importer of gas, which has become the country's single
biggest source of power. Dependence on foreign supplies is set to grow: some
estimates suggest that by 2020, at least 90 per cent of gas used in Britain
will be imported.

That reliance on imports has raised fears that Britain's broader national
interests could be jeopardised by the need to maintain trading relationships
with countries such as Russia.

Much of the Russian gas sold to Europe is piped across Ukraine, and
following the Russian move on Sunday, several European countries say
their gas supplies have fallen.

Brian Wilson, the energy minister at the DTI during the last parliament,
repeatedly raised fears that by banking on foreign gas supplies, the UK
would be exposed to just the sort of shock now emanating from Russia. Last
night, Mr Wilson told The Scotsman that the difficulties caused in Britain
by the Russian conflict with Ukraine illustrated the "foolishness" of
ignoring such warnings.

"I remember having these discussions at the time, saying: 'Hang on a second,
do we really want to be so dependent on Russia?'" Mr Wilson said. "The
answer from the officials was always: 'Oh, Russia has never defaulted on a
contract'. The attitude was that it will be all right on the night.

"The presumption has been that Russia would always be a reliable supplier,
but how can that be guaranteed? No-one knows who's going to be in charge
in Russia in ten or 15 years' time."

Britain's current energy "mix" was determined by the government's energy
white paper in 2003. Currently, gas-fired power stations generate about 37
per cent of UK electricity. Coal power stations produce about 35 per cent,
nuclear reactors 22 per cent and renewables, such as wind and solar power,
account for about 5 per cent.

Mr Wilson left parliament last year. Although he was in office when the
white paper was drawn up, he privately argued in 2002 and 2003 that Britain
should derive less energy from imported gas. "But the policy was being made
in reverse," he said yesterday.

"The growing dependence on gas had to be allowed in order to rationalise the
rundown of coal." The problems now being caused by Russia's move, Mr
Wilson said, "emphasise the foolishness of becoming dependent on imported
gas".

Lord Howe, the former Tory foreign secretary, echoed that concern yesterday.
"It's becoming very clear that Europe is beholden to Russia because Russia
is a such a big gas supplier," he said. As a result, Russia was in a very
strong position, he added.

The 2003 white paper was published a month before the start of the war in
Iraq. Tony Blair, the Prime Minister, paid little attention to the paper,
leaving Patricia Hewitt, then trade secretary, and Margaret Beckett,
environment secretary, in charge. The Prime Minister is now understood to
regret that and has effectively reopened the debate about energy policy,
with a new government review expected to report in the summer.

The review is likely to back the building of a new generation of nuclear
power stations, and the Russian row has only strengthened the hand of
nuclear advocates in government.

The energy paper is also expected to call for clear rules on gas imports to
ensure that no one supplier becomes vital to Britain's needs. That could
mean constructing new pipelines and other supply routes from nations
including Canada, and regions including North Africa and South America.
Since the Russian crisis arose, the DTI has been at pains to stress that
Britain sources most of its gas from more stable countries - particularly
Norway - and none from Russia.

But since Russia does supply about a quarter of the gas used in continental
Europe - some of it piped across Ukraine - shortages in those countries will
leave them less able to sell gas on to Britain. The Russian move can
therefore drive UK prices up. On Sunday, Malcolm Wicks, the energy
minister, insisted that there was "no immediate threat" to British prices
from the Russian move.

Yesterday, the minister admitted that there could indeed be financial
consequences for the UK, albeit on a smaller scale than those being faced by
other European nations. "We are increasingly talking about a European or a
global energy market, so there's always a worry about knock-on effects," he
said. "This is a difficult winter throughout Europe.

"It's colder than average, and for various reasons in Britain we have got
quite a tight equation between demand and supply.

"We need to look at this one very carefully, but we are not a heavy importer
of gas from Russia, so the effects here should be less than elsewhere."

Despite Mr Wicks's assurances, Britain's biggest gas supplier, Norway, said
last night it could provide little relief. "Deliveries of natural gas from
the Norwegian continental shelf are now at an all-time high," the country's
energy ministry said, warning that gas production capacity was "fully
utilised". Statoil, the biggest Norwegian gas company, said there was "no
slack" available in its production network.

European Union ministers and officials will meet in emergency session in
Brussels tomorrow to discuss how to respond to the Russian-Ukrainian
dispute.

The Organisation for Security and Co-operation in Europe also stepped in
last night to urge Russia and Ukraine to resolve their dispute. Karel de
Gucht, the Belgian foreign minister, whose country currently holds the OSCE
presidency, appealed to "all parties to pursue their discussions and to
explore, in a constructive manner, all options that could bring about a
mutually satisfactory solution".

Despite current concerns, some diplomats are optimistic that Moscow will
seek to resolve the dispute quickly - mindful of the need to preserve its
reputation as a reliable supplier. As this year's president of the Group of
Eight industrialised economies, Russia's president, Vladimir Putin, has said
secure energy supplies are at the top of his agenda.
PLEDGE TO SEND EXTRA SUPPLIES TO EUROPE
RUSSIA'S state gas company yesterday pledged to send extra supplies to
European countries hit as a result of its dispute with Ukraine. Several
European countries reported cuts of as much as 40 per cent in their supplies
yesterday, and Serbia was forced to introduce rationing. About a quarter of
the European Union's supplies come from Russia and there were concerns an
extended dispute could cause major disruption.

The Russian state monopoly, Gazprom, said enough gas was being piped via
Ukraine to supply other countries, and if they were not getting their gas it
must be because Ukraine was diverting it. In a faxed copy of a telegram sent
to Ukrainian oil and gas firm Naftogaz, Gazprom said it had decided to send
an extra 95 million cubic metres of gas per day to Europe to cover
shortfalls.

Austria, Hungary, Poland, Romania, Croatia and Slovakia all reported a sharp
fall in deliveries. The major French provider, Gaz de France, said its
Russian gas supplies had fallen by 25-30 per cent on Monday morning and
Italy's Eni reported a 24 per cent drop.

Germany, Russia's largest customer, told Moscow it must act responsibly and
show it can be trusted as a supplier. Poland said supplies were down 35 per
cent, but it had reserves to last at least a week. -30-
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http://news.scotsman.com/international.cfm?id=8332006
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20. RUSSIA STEPS BACK FROM BRINK WITH UKRAINE AND
RESTORES GAS SUPPLIES TO EUROPE

Tom Parfitt, Moscow, Luke Harding, Berlin
The Guardian, London, United Kingdom, Tue, Jan 03, 2006

Russia's image as a reliable international energy supplier became
increasingly tarnished yesterday as a stand-off with Ukraine over gas prices
disrupted supplies to Europe.

The Russian energy group Gazprom accused Ukraine of stealing about $25m
(pounds 14.5m) worth of natural gas from transit supplies destined for other
European countries, but most EU members blamed President Vladimir Putin for
the crisis. Last night Gazprom appeared to bow to international pressure by
increasing transit supplies flowing through Ukraine by the amount allegedly
siphoned off.

Germany's economy minister, Michael Glos, called on Moscow to compromise
in its feud with Ukraine. "Russia has the presidency of the G8 and therefore
has to act responsibly," he said.

The Russian state-owned energy company Gazprom switched off flows to
Ukraine on Sunday after a bitter, politically charged dispute over gas prices. A
drop in deliveries to other countries sent through the same pipeline network
was noticed within 24 hours.

In the UK the energy minister, Malcolm Wicks, admitted the dispute could
affect European and global markets. Speaking to the BBC, he reminded Russia
it had "never let down Europe during the cold war" and expressed hope it
would be "mindful of its reputation as a secure energy supplier".

Five EU countries yesterday confirmed that the amount of gas arriving from
Russia had fallen off dramatically. Germany, Austria, Poland, Hungary, and
Slovakia all reported a sharp drop in supplies, with Hungary saying its gas
deliveries had gone down by 40%.

"This situation cannot be accepted. Russia is mixing its foreign policy with
its policy for gas supplies," Poland's deputy prime minister, Ludwik Dorn,
told broadcaster Radio Zet. While harsh judgment of Russia from former
Soviet satel lite states was predictable, there was fresh debate from "old
Europe" as to how it should respond ahead of tomorrow's emergency meeting
of EU energy experts.

The EU buys a quarter of its gas from Gazprom. Mr Glos, who belongs to a
conservative coalition led by Germany's chancellor, Angela Merkel, said the
country should now reconsider its decision to phase out nuclear energy.

Two German importers of Russian gas, Wintershall and E.ON Ruhrgas,
confirmed that Germany, which imports 30% of its gas from Russia, "had
been affected". The firms refused to say, however, how much gas had
disappeared, with a Wintershall spokesman insisting that "here everyone will
get through the winter warm".

Looking on from Washington, the US state department said it was concerned
that the gas stoppage created "insecurity in the energy sector in the region
and raises serious questions about the use of energy to exert political
pressure".

Russia took over the presidency of the G8 nations on Sunday, and President
Putin has promised to make energy security a cornerstone of his leadership.

Moscow attempted to shift all blame for the conflict to Kiev. Gazprom deputy
chairman Alexander Medvedev said that since delivery of gas had stopped,
Ukraine had siphoned off 100m cubic metres from pipelines crossing the
country. The Ukrainian prime minister, Yury Yekhanurov, denied that gas had
been taken.

Andrei Illarionov, a former senior Kremlin adviser who resigned last week,
claimed yesterday that Gazprom had no legal right to stop gas flows to its
neighbour. Mr Illarionov said a price of $50 per 1,000 cubic metres had been
fixed for five years in 2004. Moscow now wants $230.
----------------------------------------------------------------------------------------------
LINK: www.guardian.co.uk/russia
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21. GAZPROM TO COVER EUROPEAN EXPORTS 'STOLEN'
BY UKRAINE AFTER SUPPLIES CUT OFF

Bloomberg, New York, New York, Monday, January 2, 2006

MOSCOW - OAO Gazprom, Russia's natural-gas export monopoly, will
raise gas deliveries to European customers by 95 million cubic meters a day,
an amount the company said Ukraine has siphoned off after supplies were
cut to the country.

Gazprom will add 3.96 million cubic meters an hour of gas shipments to
Europe to compensate for the shortage occurred during the first day when
supplies were halted to Ukraine, according to a telegram Gazprom sent to
Ukraine's state gas company NAK Naftogaz Ukrainy, a copy of which was
distributed today at a press conference in Moscow.

"By tomorrow evening gas supplies to Europe will be restored in full, in
accordance to their contract,'' Gazprom Deputy Chief Executive Alexander
Medvedev said at the press conference. "However, the situation in which
Ukraine continues to steal gas and we continue to supply European customers
can't continue indefinitely.''

Gazprom yesterday cut gas supplies to Ukraine after the country refused to
pay more than four times 2005's rate for natural gas, deepening tensions
between the two former Soviet republics. The supply cut reduced deliveries
to countries including Austria and Hungary by as much as 35 percent,
according to the countries' natural-gas producers.
'FULL VOLUME'
State-run Gazprom supplies about a quarter of gas consumed in Europe and
ships about 75 percent of that volume through Ukrainian pipelines. Russian
gas accounts for 30 percent of German consumption, 25 percent of Italy's and
between 20 and 25 percent of French demand, according to a note that French
bank BNP Paribas SA sent to clients today.

"If the stealing continues at such a rate, the volume and value of the
stolen gas will be very, very significant,'' Medvedev said at an earlier
press conference today. "We will take all possible measures so European
customers will keep getting gas.'' Ukraine denied the claim.

Ukraine has shipped all gas given by Russia for transit to Europe "in full
volume,'' state gas company NAK Naftogaz Ukrainy said today in an e-mailed
statement. By deciding to increase supplies to Europe, ``Gazprom
acknowledged that it has not provided enough gas volumes for transit gas
supplies to European countries through the territory of Ukraine,'' Naftogaz
said.

Decreased pressure in the pipelines across Ukraine may reduce gas deliveries
to Europe, Naftogaz said in another statement yesterday.

Gazprom contracted SGS SA, an international inspection company, to
monitor Ukraine gas flows after the alleged theft of the gas, worth $25
million, Medvedev said today.
CHARGES BY ENI
Italy's imports of Russian gas fell by about 24 percent in the past 24
hours, Eni SpA, whose unit controls Italy's natural- gas grid, said today.
Russian gas supplies to France fell by between 25 and 30 percent since
yesterday, Gaz de France SA, the state-controlled utility, said today in a
statement.

Eni Chief Executive Officer Paolo Scaroni said in a telephone interview
today said Ukraine took ``almost 25 percent of the gas for their internal
use'' that was slated to Western European consumption. Ukraine denied the
claim.

"There has been no unauthorized diversion of gas,'' Ukraine Energy Minister
Ivan Plachkov said today in remarks shown on Russia's Rossiya television
channel. Ukraine is using its own gas and fuel from Turkmenistan ``in strict
compliance with the signed contract.''

Gazprom stopped shipping Turkmen gas to Ukraine, Medvedev said today.
"Gazprom is sending only gas for export into the Ukrainian system,'' he
said.
TURKMEN GAS
Gazprom will buy 30 billion cubic meters of Turkmen gas this year, including
15 billion cubic meters in the first quarter, which means there is no room
for Ukrainian gas in Turkmenistan's pipelines, the company said in an
e-mailed statement yesterday.

Turkmen President Saparmurat Niyazov confirmed his country will sell Ukraine
40 billion cubic meters this year, according to a statement on Ukrainian
President Viktor Yushchenko's Web site, following a telephone conversation
between the leaders.
MOLDOVA SUPPLIES
Ukraine uses about 76 billion cubic meters of gas a year, including some
that it produces itself and about 28 billion cubic meters from Gazprom,
according to Ivan Diyak, head of the Ukrainian Gas Union. Ukraine gets more
than half of its total needs from Turkmenistan.

Apart from shipments through Ukraine, Gazprom will also increase supplies to
Europe through the Yamal-Europe pipeline that crosses Belarus and through
the Blue Stream pipeline to Turkey, spokesman Sergei Kupriyanov said today
at the press conference, without elaborating on the volume.

Gazprom also switched off gas deliveries to Moldova after the republic
refused to sign a new contract for supplies at a higher price as of this
year, Yushchenko said today. Ukraine will help Moldova with supplies until
the country signs a new contract with Gazprom, he said in a broadcast by
Ukrainian TV Channel 5.

Gazprom planned to raise gas prices for Moldova to between $150 and $160 per
thousand cubic meters as of 2006, Deputy Chief Executive Alexander Ryazanov
said Nov. 29. Last year Moldova paid between $65 and $80 per thousand cubic
meters, Russian television RosBusinessConsulting reported today.
----------------------------------------------------------------------------------------------------
Torrey Clark in Moscow at tclark8@bloomberg.net.
http://www.bloomberg.com/apps/news?pid=10000085&sid=aDD6rEPRnCj4&refer=europe
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